In 138 NI Act, if issuance of cheque is not disputed, presumption of existence of legal debt kicks in; SC.

Supreme Court of India

Justice M R Shah & Justice Ashok Bhushan

The SC {APS FOREX SERVICES PVT. LTD. v. SHAKTI INTERNATIONAL FASHION LINKERS & ORS.} holds that what is emerging from the material on record is that the issuance of cheque by the accused and the signature of the accused on the cheque are not disputed by the accused. The accused has also not disputed that there were transactions between the parties.   Even as per the statement of the accused, which was recorded at the time of the framing of the charge, he has admitted that some amount was due and payable. It was held, however, it was the case on behalf of the accused that the cheque was given by way of security   and   the   same   has   been   misused   by   the   complainant. Further held that, nothing is on record that in the reply to the statutory notice it was the case on behalf of the accused that the cheque was given by way of security. Therefore, once the accused has admitted the issuance of cheque which bears his signature, there is presumption that there exists a legally enforceable debt or liability under Section 139 of the N.I. Act. However,   such   a   presumption   is   rebuttable   in   nature   and   the accused is required to lead the evidence to rebut such presumption.

Further held   that   the accused may adduce evidence to rebut the presumption, but mere denial regarding existence of debt shall not serve any purpose. It was held that whenever the accused has questioned the financial capacity of the complainant in support of his probable defence, despite the presumption under Section   139   of   the   N.I.   Act   about   the   presumption   of   legally enforceable debt and such presumption is rebuttable, thereafter the onus shifts again on the complainant to prove his financial capacity and at that stage the complainant is required to lead the evidence to prove his financial capacity, more particularly when it is a case of giving loan by cash and thereafter issuance of a cheque. That is not a case here.

It was held that the   story   put   forward   by  the   accused   that   the cheques were given by way of security is not believable in absence of further evidence to rebut the presumption and more particularly the cheque in question was issued for the second time, after the earlier cheques were dishonoured. Therefore, both the courts below have materially erred in not properly appreciating and considering the presumption in favour of the complainant that there exists legally enforceable debt or liability as per Section 139 of the N.I. Act. It was held that both, the Learned Trial Court as well as the High Court, have committed error in shifting the burden upon the complainant to prove the debt or liability, without appreciating the presumption under Section 139 of N.I. Act.   

Section 139 of the Act is an example of reverse onus clause and therefore once the issuance of the cheque has been admitted and even   the   signature   on   the   cheque   has   been   admitted,   there   is always a presumption in favour of the complainant that there exists legally   enforceable   debt   or   liability   and   thereafter   it   is   for   the accused to rebut such presumption by leading evidence. All the original accused ­ respondents herein are therefore, convicted under Section 138 of the N.I. Act by the SC.

In the present case, the assail was laid to the judgment before the SC by which the High Court has dismissed the said application for leave to appeal challenging the judgment and order of acquittal passed by the Learned Trial Court acquitting the original accused ­ respondents herein for the offence under Section 138 of the Negotiable Instruments Act (for short, ‘the N.I.   Act’) and   thereby   confirming   the   judgment   and   order   of acquittal   passed   by   the   Learned   Trial   Court,   the   original complainant has preferred the present appeal - which came to be allowed by the SC.